Relevant and even prescient commentary on news, politics and the economy.

hundreds of billions = 0 ?

Robert Waldmann

The Headline and abstract person has outdone himself or herself writing

CBO sees debt estimates soar

Analysts say health law has not improved budget and Obama’s tax agenda will make things worse.

Lori Montgomery

As Kevin Drum says always click the link. Lori Montgomery actually wrote

President Obama’s overhaul of the health-care system has done little to improve the nation’s budget outlook, congressional budget analysts said Wednesday.

So “little” has become none. The abstract contradicts the actual story.

Finally well down in the story we get to what Doug Elmendorf said

The health-care overhaul made “steps in the direction of a sustainable fiscal policy. But they are small steps relative to the journey that will be needed for fiscal sustainability,” CBO director Douglas Elmendorf said Wednesday in testimony before Obama’s bipartisan commission on the deficit.

small “relative to the journey that will be needed for fiscal sustainability” is not small. We do not normally measure sums of money “relative to the journey that will be needed for fiscal sustainability”. Another way of putting that would be “unimagninable huge immense and gigantic but nowhere near as colossal as the long term budget shortfall”.

So in the hands of the Washington Post small “relative to the journey that will be needed for fiscal sustainability” becomes “small” and then none. Too the Post hundreds of billions of dollars are zero.

Clearly that organization is not qualified to report the news. Even the simplest most cut and dried gigantic numbers are too subtle for them.

This is the end of my short punchy post. A general rant follows after the jump.

Beyond this, the CBO report isn’t news. All we learn is that the CBO headline number must be based on what Congress claims it will do, so it is based on the the assumption of no more alternative minimum tax fixes and no more doc fixed and, especially, all Bush tax cuts expire.

Pretending it is news is hyping a fact. It fits the panic about the deficit agenda. This is part of the agenda of the Washington Post opinion pages. It is not good that the news staff is hyping non news about how the long run deficit picture is grim.

Also Montgomery’s next sentence miss-allocates blame

They also said the president’s tax agenda — including a pledge to extend an array of tax cuts for the middle class — would only make things worse.

This is only true if one interprets “the president” to be George W Bush. Obama is reversing some but not all of the Bush tax cuts. The silly trick of saying they would sunset makes the change in law a tax cut, but the change in policy is a tax increase. Montgomery is blaming Obama for not undoing all of the damage that Bush did.

This is the general slant. Obama is blamed for the long run budgetary shortfall, because the huge gigantic improvements that he has achieved plus the huge gigantic and popular improvements which he has proposed are not huge and gigantic enough to undo the damage the Republicans did when they were in control.

He’s been Posted.

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CBO LTO for Social Security

Under CBO’s ‘Extended Baseline’, i.e. roughly Current Law the 75 year actuarial gap is up to 1.6% from 1.3% and the date of Trust Fund Exhaustion moved back from 2043 to 2039. Under the ‘Alternative Fiscal Scenario’ the corresponding numbers are 2.1% and 2037 or right in line with the Social Security Trustees 2009 projections. Meaning that the NW Plan as currently formulated would handle even CBO’s more pessimistic projection. The sky is not falling and contrary to some people’s calculations the Trust Funds will not go to zero by 2012.

And while the percentage of GDP that will go to Social Security is projected to increase from 4.8% to 6.2% under both alternatives this has to be (or at least morally should be) balanced against the fact that the percentage of people eligible for retirement will grow from 22% to 35%. Unless someone would care to make the argument that older people should ipso facto get a smaller share of productivity per capita in the future than they do now this hardly seems unreasonable.

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CBO Releases Long Term Budget Outlook

by Bruce Webb

CBO Director’s Blog summary of Long Term Budget Outlook (Interesting side comment: “Later this week, CBO will release a report on a number of different policy options for changing Social Security”). Elmendorf, not surprising given his history and current job, is fully on the side of the deficit hawk/hysterics.

Report text (1.2MB PDF) Long Term Budget Outlook

These were just released at 9AM Eastern so I haven’t had a crack at them yet. Feel free to beat me to the juicy parts and put them up in comments. I’ll update this post as necessary through the course of the morning.

Interestingly if we examine the above two figures we see that ‘Extended baseline’ which essentially means ‘Current law’ shows the deficit vanishing by 2014 and Debt Held by the Public stabilizing through 2035. Making some of the “If this goes on the sky will fall!” rhetoric around Obama policy a little overstated, just as with Social Security a plan of “Nothing” getting oddly some pretty good projected results.

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Links Worth Noting at CBPP: more on causes of deficit and increases in income inequality

by Linda Beale
crossposted with Ataxingmatter

Some Links Worth Noting at CBPP–causes of deficit, increases in income inequality

Center on Budget and Policy Priorities, Where Today’s Large Deficits Come From

Amidst all the renewed talk about budget deficits, it’s important to remind ourselves what caused the signficiant expansion of the deficit. As I’ve noted, it can be attributed primarily to three things: Bush’s tax cuts, Bush’s decision to go to war in Afghanistan and Iraq, and the need for economic stimulus and financial system bailout to counter the financial crisis that began in the next to last year of Bush’s Administration as a result of the four-decades-long financialization of the economy due to deregulation and development of a casino-gambling mentality in the nation’s commercial and investment banks. The Center’s graphs and data do a good job of setting out more of the details of those three causes of the deficit.

Center on Budget and Policy Priorities, Income Gaps Between Very Rich and Everyone Else More than Tripled in the last three decades, new data show,June 25, 2010, hat tip Tax Prof

The facts of income disparity increase in this country are startling, and the likely result–in terms of corporatist capture of government policies (as witnessed in the “flawed success” of financial reform, as noted by Salon’s Andrew Leonard) and continued degradation of lifestyle for most ordinary Americans, is disturbingly remininiscent of the “roaring twenties” contrasts in lifestyles of the poor and the excessively rich. Even the Great Recession hasn’t given Congress the will to shake the shackles of catering to the uber-wealthy class, as witnessed by the failure to enact a carried interest provision (treating the compensation income of venture capital, private equity, hedge fund, real estate and any other service partner as the compensation income that it is, subject to ordinary rates just like every other type of compensation income), the limited success in dealing with health care reform (limited, since the corporations were able to stave off a public option that would have forced them to accept lower profits and make health care more affordable for all), and the limited success of financial reform (which left banks with some proprietary trading–up to 3% of their capital–and with the ability to retain most of their derivatives profits, even though the trading and derivatives represent considerable risk to taxpayers and little productive value for the economy).

Here are several key points detailed in the report:

  • Between 1979 and 2007, average after-tax incomes for the top 1 percent rose by 281 percent after adjusting for inflation — an increase in income of $973,100 per household — compared to increases of 25 percent ($11,200 per household) for the middle fifth of households and 16 percent ($2,400 per household) for the bottom fifth.
  • In 2007, the average household in the top 1 percent had an income of $1.3 million, up $88,800 just from the prior year; this $88,800 gain is well above the total 2007 income of the average middle-income household.
  • The CBO figures show that the nation’s income has grown substantially since 1979; if this growth had been shared more broadly, most groups would have seen much larger gains. For the nation as a whole, after-tax household income increased 55 percent from 1979 to 2007, adjusted for inflation. If all groups’ incomes had grown by 55 percent, the average income of the bottom fifth of households would have been $23,710 in 2007 (rather than $17,700) and the average income of the middle fifth would have been $68,342 (rather than $55,300). Instead, the wealthiest households reaped a sharply growing share of the nation’s income, while the share going to middle- and lower-income households shrank.

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Yield curves in Japan and the US: similar but not the same

Andy Harless presents the case for a double dip (second recession) – I would re-order #1 and #2 on that list – and that for a sustained recovery. #6 of Andy’s case for a sustained recovery (he calls it Case Against a Second Dip) caught my attention, pointing me to an earlier Paul Krugman article about positively-sloped yield curves in a zero-bound policy environment.

In a related article, Krugman argues that a current policy of near-zero short-term rates precludes the lowering further of future short-term rates. Therefore, the steep yield curve reiterates that rates have nowhere to go but up rather than that the economy is expected to improve.

Reasonable; but it was Krugman’s comparison to policy during Japan’s lost decade that got the mental wheels rolling:

Indeed, if we look at Japan we find that the yield curve was positively sloped all the way through the lost decade. In 1999-2000, with the zero interest rate policy in effect, long rates averaged about 1.75 percent, not too far below current rates in the United States.

In my view, current Fed policy is generally more credible than policy undertaken by the Bank of Japan in the early 2000’s. The fed funds target has been near-zero since December 2008; and the new reserve base (liquidity) peaked quickly since the onset of QE and has since remained in the banking system.

Therefore, it would stand to reason that as long as policy remains consistent and big (the latter on the fiscal side is the problem right now), the US yield curve can, in my view, be interpreted as an auspicious sign – all else equal, as they say – as compared to the positively-sloped one in Japan.

Monetary policy in Japan: 1998 – 2006

The Bank of Japan has a solid history of rescinding their own policy efforts. They did it earlier this year; but more importantly their policy announcements spanning the years 1999 to 2006 have on occasion been rather deceiving. Notice that the 2-10 yield curve never became inverted.

The shortened version of the timeline (illustrated in the chart above):

  • From Bernanke, Reinhart, and Sack (2004): “In April 1999, describing the stance of monetary policy as “super super expansionary,” then-Governor Hayami announced that the BOJ would keep the policy rate at zero “until deflationary concerns are dispelled,” with the latter phrase clearly indicating that the policy commitment was conditional.”
  • In August 2000, The BoJ raises the overnight call rate to 0.25%, up from near-zero.
  • In February 2001 the BoJ lowers the overnight call rate to 0.15%.
  • In March 2001, the BoJ announces its quantitative easing strategy, initially targeting current account balances (essentially reserves) at 5 trillion yen and lowered the overnight call rate target to near-zero.
  • Until 2004, the BoJ raises the current account reserve target several times until it peaks at 30-35 trillion yen.
  • In March 2006, the BoJ exits QE.

I concur with Paul Krugman, that the deflation threat is very very real. I do not think that it is completely fair to compare the current US yield curve to that to early 2000’s Japan.

To be sure, the likelihood of rates rising is the only possibility built into the US yield curve right now (no possibility of lower rates); but since the Fed is relatively more credible and consistent, the probability of rates rising is much higher compared to that in early 2000’s Japan.

And the current US curve is steep! The chart below compares the dynamics of the 2-10 yield curve in Japan from its low in 1998 through 2006 to that in the US from its low in 2007 through June 24, 2010.

Rebecca Wilder

Reference for paper in final chart: Luc Laeven and Fabian Valencia (2008), Systemic Banking Crises: A New Database, IMF Working Paper WP/08/224.

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The Supreme Court’s Decision in In re Bilski:: does it allow tax patents or not?

by Linda Beale
crossposted with Ataxingmatter

The Supreme Court’s Decision in In re Bilski:: does it allow tax patents or not?

The Supreme Court handed down its decision in Bilski Monday, holding, as almost everyone had predicted, that the hedging process that was the subject of the Bilski claim was unpatentable. Download Bilski at SCOTUS 08-964. The question for those of us following the case, of course, was not whether the Court would consider the claim patentable. The question was on what ground the Court would rest its decision and whether the decision would shed any light on the larger category of business method patents generally and tax strategy patents specifically.

The opinion of the Court was written by Justice Kennedy and joined by the four justices on the right–Alito, Roberts, Thomas and Scalia. The opinion agreed that the Federal Circuit’s “machine-or-transformation” test was a valuable clue to the question of process patents eligibility, but rejected the Federal Circuit’s conclusion that it was the exclusive test for process patents. The statutory analysis in the opinion was the kind of stretched, “ordinary meaning” dictionary and common usage based interpretation that becomes absurd quickly in the context of a highly technical statute such as the Patent Act. Consistent application of that everyday definition of process would allow patenting of almost any novel human activity, including a series of steps to implement a tax planning strategy. Further, the opinion treats a remedies provision (enacted in the wake of the State Street Bank case to protect those who might be accuse of infringing this new cateogry of business method patents approved by the court) as an amendment of the key patentability categories language rather than as the stopgap measure it was clearly intended to be because of the Federal Court’s condoning of business method patents.

The Court concluded that the hedging claim at issue was unpatentable under its exceptions for abstract ideas (not found directly in the statute, but claimed (awkwardly) to be consistent with the statute’s “new and useful” language). This is the place where the Court could have shed considerable light on patentability, since it is very unclear from prior precedent just how far the “abstract idea” exception extends. But instead, this opinion created even more confusion. While hedging in itself is an abstract idea, the application of a hedging algorithm to a particular commodity is not necessarily. So it seems that there is something beyond mere abstract idea operating here, but the Court was either reluctant or unable to put its fingers on what it was.

Interestingly, while it rejected the Federal Circuit’s machine-or-transformation test as the sole basis for deciding process claims, it nonetheless encouraged the court to develop additional definitive criteria that would help narrow down the kinds of process claims that are patentable. There is a good bit of language in the Court’s opinion, in fact, that suggests that process claims should not be interpreted overly broadly, even though the patent law generally has been viewed as having wide scope. The Court makes clear that the remedies provision in section 273 does not istelf suggest a broad reading of business method patentability. The Court indicates as well that process claims require a test with a higher hurdle to prevent inappropriate claims from being treated as patentable, else the Patent Office would be “flooded with claims” that could place a “chill on creative endeavor” and literally stifle competition. It encourages the Federal Circuit to come up with additional ways to define a narrower category of process claims based on the Flook, Benson and Diehr trilogy of cases that outlined the exceptions for “abstract ideas, laws of nature and physical phenomena” and yet approved an application of an algorithm in a rubber curing method. It indicates that nothing in the opinion should be read as an endorsement of the lax State Street Bank test. Nonetheless, it concludes that “the Patent Act leaves open the possibility that there are at least some processes that can fairly be described as business methods” that would be patentable. In sum, that is weak support for business method patents and tax strategy patents in particular, but it certainly leaves the door open for some business method patents, particularly the computer programs that were the subject of several amicus briefs and, by extension, possibly some tax strategies that are dependent on application by computer.

Scalia, however, did not join in two parts of the opinion that acknowledged the extreme rarity of business method patents until the 1990s under well-established principles, but nevertheless accepted the idea that “unforeseen innovations” such as computer programs might need to be treated as patentable in accommodation of “Information Age” technologies. These parts of the opinion are the most supportive of the corporatist position favoring broad scope of business method patentability, but Scalia’s tendency to rely on originalism makes it hard for him to take this step. That may be a good sign for those of us who think that business methods should not be patentable, and in particular that patent claims setting forth tax planning strategies for transactions designed to conform to legal requirements should never be patentable.

Stevens wrote a concurring opinion, in which Ginsburg, Sotomayor and Breyer joined. That opinion relied on statutory analysis and the history of the patent laws to conclude that business methods should not be eligible for patentability as process patents. The opinion notes the inconsistencies in Kennedy’s arguments, and the ultimately conclusory holding that the Bilski claim was an unpatentable abstract idea. It faults the majority opinion for weak statutory analysis, using the history of the British and US patent laws to establish the well-settled principle through the 1980s that business methods were not patentable.

Breyer also wrote a separate concurrence, claiming to set forth the agreed views of all members of the Court that may not be obvious from the multiplicity of opinions, as follows:

Section 101 has broad scope, but it is limited by the three judicially created exceptions (laws of nature, physical phenomena, abstract ideas );
The machine-or-transformation test is a critical clue to patentable processes;
The machine-or-transformation test is not the sole test for process claims, but broadly speaking, process claims must be consistent with the function that the patent laws are designed to protect;
The fact that the machine-or-transformation test is not the exclusive test for patentability does not mean that State Street Bank applies–the test in that case (which approved business method patents generally) led to “truly absurd” patent grants;
Breyer concluded that the Court means neither to “deemphasize” the machine-or-transformation test’s usefulness nor to suggest that many patentable processes lie beyond its reach.

The dissolution of the majority on the question of an expanded view of process patentability in light of “Information Age” technologies suggests that the Court might well reject tax strategy patents except perhaps in the cases where they are clearly interrelated with computer applications that cannot be treated as “mere post-solution activity.” In effect, this leaves the issue even more in limbo than before. The machine-or-transformation test appeared to have loopholes that would allow computerized applications of tax strategies to be patentable, and the opinion of the Court appears to support that possibility. Scalia’s refusal to join the sections on Information Age technologies, however, pushes back against easy acceptance of patents based on legal strategies. And certainly the four justices in the minority would not find tax strategy claims eligible for patentability. This was the last case in which Justice Stevens will participate, so there is also the uncertainty of the new Justice’s approach to these issues and ability to persuade others on the Court to his or her opinion.

The AICPA, which has spearheaded the tax practitioner and accountant community’s lobbying against tax strategy patents, issued a release on Monday that noted the continuing uncertainty about patentability of tax strategies. It called on Congress to enact a clear ban to resolve the issue once and for all. AICPA Renews Call for Congressional Action to Ban Tax Patents, PRNewswire, June 28, 2010.

Congress should act, but one suspects that the health and financial battles make enactment of the major Patent Reform Bill practically untenable for now. That means that the most likely possibility for a ban on tax strategy patents would be through a dedicated bill dealing solely with that issue. But you can bet that the IP bar will fight such a bill tooth and nail, as a toe in the door towards narrowing of patent law (and their turf), under the banner of “innovation” and “public disclosure.” Innovation is not an inherent good in finance or tax, and there is little merit to the public disclosure of tax strategies for helping people avoid even more taxes than they already do. Meantime, we will remain in suspense as the Patent Office and Federal Circuit work through the Supreme Court’s opinion.

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Taxes and Private Sector Investment – Evidence from the Real World

by Mike Kimel
Cross-posted on the Presimetrics blog.

Taxes and Private Sector Investment – Evidence from the Real World
Last week I had a post (which appeared both here and at Angry Bear). The post included the following graph:

Figure 1

The graph looks at every eight year period since 1929 (the first year for which National Accounts data is available from the Bureau of Economic Analysis) that can be thought of as a complete “administration.” It notes that there is a very strong negative correlation between the tax burden in the first two years of an administration and the economic growth that follows in the remaining six years of the administration. In plain English – the more the tax burden was reduced during the first two years of an administration, the slower the economic growth in the following six years. Conversely, the more the tax burden was raised during the first two years of each administration, the faster economic growth was during the following six years.

At this point I note… this is not my opinion, it is what the data shows. And there is no cherry picking – I went back as far as there was data and included every eight year stretch for which a single President occupied the Oval Office or in which a VP took over from a President in the middle of a term. And these real world results contradict just about everything that standard economic theory (Classical, Austrian, you name it) tells you.

So I tried providing an explanation:

Michael Kanell and I advanced several theories in Presimetrics but the one I think makes the most sense is that changes in the tax burden are a sign of the degree to which an administration enforces laws and regulations.

The logic is simple – (1) collectively, Americans cheat on their taxes and (2) whether the tax burden, the percentage of GDP that the government collects in taxes, rises or falls seems to have nothing whatsoever to do with whether marginal income tax rates rise or fall. Thus, one way for tax burdens to go up is increased enforcement, and one way for tax burdens to fall is decreased enforcement.

Now, to me that’s self-evident. But I’m starting to realize not everyone sees it this way, so let’s run a simple test. If a regime tolerates corruption or encourages companies to game the system rather than to be productive, we should expect growth in the private sector to be minimal at best. All else being equal, we should expect faster growth in the private sector the less rot there is in the system. I assume this is not remotely controversial. And it implies that if tax collections are indeed an indicator of an administration’s intolerance for shenanigans, then growing tax burdens should be followed by rapidly increasing private sector activity and falling tax burdens should be followed by relatively slow growth in private sector activity.

Crazy, right? Lower taxes leading to less private sector activity! Insanity! It defies economic theory. And common sense. But how does it fit with what happened in the real world? Extremely well, actually.

The graph below shows the change in the tax burden in the first two years of each 8 year administration on the horizontal axis, and the annualized change in real private investment per capita in the remaining six years along the vertical axis.

Figure 2.

Notice… administrations that cut the tax burden early saw mediocre increases in private investment later. On the other hand, administrations that started out by increasing the tax burden enjoyed big increases in private investment in the remainder of their term. This is yet another instance where real world results contradict just about everything that standard economic theory teaches, particularly the Chicago School, Austrian, and Libertarian variety. And sadly, that theory has so permeated our collective thought processes that it has come to be referred to as “common sense.” Just as it was common sense at one point that the earth was flat, and the center of the universe.

It’s worth pointing out, by the way, that the relationship between the tax burden and real private consumption is similar; administrations that raised the tax burden saw greater increases in real private consumption per capita than administrations that reduced the tax burden. The relationship, albeit a strong one, is slightly weaker than the relationship between tax burdens and investment. By contrast, the relationship between changes in the tax burden in years 1 and 2 and changes in real Federal Government spending per capita are much, much weaker.

So let me revisit once more the explanation that Michael Kanell and I put forward in Presimetrics and which is consistent with the data presented in both graphs above. Administrations that cut the tax burden tended to do so mostly by reducing enforcement of tax laws and regulations. But people who don’t believe in enforcing tax laws are also not particularly fond of most other forms of rules and regulations, preferring a laissez faire “pro-business” government in all walks of life. Sure, there may well be many private sector winners when the government allows a free-for-all. However, as the costs of exploiting loopholes, breaking laws and creating externalities falls relative to the costs of doing productive things, fewer truly useful productive activities take place, and that kills growth.

If you have a better explanation, let me know.

Data sources and comments.

The definition of the tax burden used in this post is Federal government current receipts from line 1 of NIPA Table 3.2divided by GDP from NIPA Table 1.1.5, line 1. Real economic growth was measured as the change in real GDP per capita, which was obtained from NIPA Table 7.1, line 10. Population came from the last row in the same table.

Real private investment came from line 7 of NIPA Table 1.1.6.

As always, the change in any series over the length of an administration is measured from the year before the administration took office (the “baseline” from which it starts) to its last year in office.

I intend to look at the relationships described in this post in a bit more detail going forward. However, expect the next post to cover another issue which seems to come up a lot – whether the results I’ve been posting are statistically valid or not.

Note also… if it’s not obvious, this post deals with the tax burden, the share of GDP going to the Federal government, and not marginal tax rates. Please do not insist on commenting on a topic unrelated to this post.

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Opower…this is your profile

The Washington Post reports on an interesting development. If people aren’t able to “see” how they personally fit in to the ‘economy’ or ‘carbon footprint’ in a real way, they often ignore the ‘problem’ or keep it so abstract it does not touch them.

Three years ago, Dan Yates and Alex Laskey, the co-founders of Arlington-based Opower, came to a conclusion: People cared about their carbon footprint, for the most part, but needed a blueprint for reducing it. The longtime friends recognized an opportunity to create that path by providing people with an analysis of their electricity consumption.

Since then, Opower has blossomed into one of the rising stars of the energy industry, on track to post a $35 million profit this year, roughly eight times its revenue in 2008, according to the privately held company.

“We’re starting to see stronger adoption of Opower’s product by a lot of operators,” said Teresa Mastrangelo, an analyst with researcher Smart Grid Trends. “It’s a very simple way to start educating consumers on how they use energy.”

Opower essentially takes raw data, obtained from a utility company that contracts its services, and creates detailed reports on how customers’ consumption compares with their neighbors. The report also provides customized tips for each customer to address wasteful behavior. What’s more, the Opower team, made up of 105 employees, redesigns utility Web sites, offering e-mails and text alerts to update customers on usage…

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Get Ready for Data Overload: Weds Report releases

by Bruce Webb

via Brad DeLong we learn that CBO is releasing its 2010 Long Term Budget Outlook on Wednesday at 9AM. Which is also the date that the 2010 Social Security Report is (over-)due to be released. Which means some head to head, apples to apples comparisons of economic projections over the 75 year window.

The Long Term Budget Outlook shouldn’t be confused with the more detailed (for my purposes) Long Term Social Security Projection typically put out by CBO in August, but there should still be plenty of material on Social Security and Medicare to discuss. Good times!

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A Caveat, Walter Dellinger

by Beverly Mann
originally posted at The Annarborist

A Caveat, Walter Dellinger

“In Skilling (ably explained by Paul’s posting), my law firm colleagues pressed the argument that the statutory crime of denying anyone of the “intangible right of honest services” was unconstitutionally vague unless it was sharply limited to bribery and kickbacks. Given that the honest-services statute had been the basis of hundreds of prosecutions that had been upheld in every federal court of appeals, it may have seemed an unlikely gambit to challenge its constitutionality at this late date. The fact that all nine justices agreed that this long-standing and frequently invoked law was unconstitutionally vague suggests once again that litigants should not take law “settled” by court of appeals as a given.”

—Walter Dellinger,* writing in Slate

Well, no, with due respect to Walter Dellinger—and a great deal of respect is due here; this post and his others thus far are outstanding in their analysis not just of the narrow substantive issue that the Court decided in the cases he’s discussing, but also in their underlying indications— the fact that all nine justices agreed that this long-standing and frequently invoked law was unconstitutionally vague suggests once again that litigants who fall within one of the privileged classes of parties whose petitions to the Court will be given actual consideration by the justices should not take law “settled” by court of appeals as a given.”

The Skilling case and the related Black and Weyrauch cases decided in concert, all of them challenging as unconstitutionally vague the “honest services” statute, illustrate, as does another high-profile opinion the Court issued within the last two weeks, Stop the Beach Renourishment, Inc. v. Florida Dept. of Environmental Protection, that these justices will look the other way for many years (some of the justices, for decades), rejecting one after another after another request that the Court consider a challenge to the constitutionality of, or a challenge to a lower federal courts’ interpretation of, some statute or court-created procedural or jurisdictional “doctrine” (e.g., a court-created rule that determines whether the federal courts have “subject-matter jurisdiction” to hear the case at all), until some zillionaire CEO or some Fortune 100 corporation or some group or individual challenging as unconstitutional some government-caused diminishment of the value of their property or some other government action opposed by the Republican Party’s base.

Or at least until some other private litigant has the sophistication and financial wherewithal to hire a member of the elite group of regular Supreme Court litigators. Or until some government or government official or employee asks the Court to consider the issue.

In a remarkable admission five years ago in an opinion written by Justice Ginsburg in a case called Exxon Mobil Corp. v. Saudi Basic Industries Corp., the Court actually conceded that a subject-matter jurisdictional doctrine known as the Rooker-Feldman doctrine, created by the Court in 1983, had been routinely and profoundly misinterpreted by the lower federal courts for more than two decades. That Court-created doctrine impliedly inserted a word—the word “only”—into a particular jurisdictional statute, 28 U. S. C. §1257, so that, with that word inserted, the statute removed from the lower federal courts the authority to hear cases that challenged the constitutionality of state-court procedures or interpretations of state laws and policies.

Until last week, that is. The opinion five years ago in Exxon Mobil Corp. limited the use of the doctrine only to the extent necessary for Exxon Mobil to win. No matter that that particular limitation on the use of the doctrine was nonsensical. The limitation was that the lower federal courts indeed could consider such cases as long as the case was not completely over in the state courts, including in the appellate courts, at the time that the federal lawsuit was filed. Exxon Mobil’s case was still pending in the state courts, so—voila!—the federal courts could (no, make that, must) hear Exxon Mobil’s federal lawsuit. That ruling enabled the lower federal courts to continue to refuse to hear such lawsuits except in cases that were still pending at some level in the state-court system.

Until this month, that is. Actually, first, on June 1, the Court issued a majority opinion by Justice Ginsburg in a case called Levin, Tax Commissioner of Ohio v. Commerce Energy, Inc., holding that in the particular type of case—cases in which a party is challenging the constitutionality of a particular state tax—the party must first litigate that issue to its full conclusion in, um, state court. The case subtlely killed Rooker-Feldman in its Exxon Mobil reincarnation. But the opinion didn’t mention Rooker-Feldman.

Three weeks later, in Stop the Beach Renourishment, Inc., though—much to my surprise—it did. In an opinion by Justice Scalia, who referred derisively to Rooker-Feldman (to his credit, not for the first time during his tenure on the Court) as “the so-called Rooker-Feldman doctrine), the Court overturned the doctrine in total. The Scalia opinion doesn’t actually say that that is what the Court was doing, opting instead to say that the doctrine is not after all a subject-matter-jurisdiction doctrine but is just a reiteration of another legal doctrine called the doctrine of res judicata. The doctrine of res judicata is one that predates the Rooker-Feldman doctrine by roughly two hundred years. It bars litigants from re-litigating issues or claims that they lost on in earlier litigation—but its application is unequivocally limited by four specific requirements of constitutional due process of law.

Justice Stevens, incidentally (or maybe not incidentally), is a longtime, vociferous critic of Rooker-Feldman, and has advocated its demise.

Because this particular case challenged the constitutionality of what the petitioners to the Court called a “judicial taking” via a state court’s ruling in their case, and because these litigants had filed their Fifth Amendment “property takings” challenge in the lower federal courts after the state-court case was completed, the Court needed to effectively kill the Rooker-Feldman doctrine in all its incarnations in order to hear the case.

I wrote a few months ago on Slate’s “The Fray” discussion board that the Court would decide the case on the merits of the substantive constitutional issue, but I doubted that the Court would even mention Rooker-Feldman. I expected the justices to silently treat this as a one-case instance. So I’m surprised. And deeply gratified.

This is, of course, not to say that the lower federal courts will stop invoking Rooker-Feldman to dismiss lawsuits that challenge the constitutionality of state-court procedures or state-court rulings. But it is to say that next time some CEO, mega-corporation, or group or individual challenging the constitutionality of some state-court ruling that offends the Republican base, the Court may actually finally expressly say that it is killing Rooker-Feldman. But only if that is absolutely necessary in the particular case.

* Walter Dellinger is a partner at O’Melveny & Myers in Washington, D.C., and head of the firm’s national appellate practice, and earlier served as head of the Office of Legal Counsel and as acting solicitor general.

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